Co-Living: A Solution to the Housing Crisis? Scott Corfe SOCIAL MARKET FOUNDATION FIRST PUBLISHED BY The Social Market Foundation, February 2019 11 Tufton Street, London SW1P 3QB Copyright © The Social Market Foundation, 2019 ISBN: 978-1-910683-57-6 The moral right of the author(s) has been asserted. All rights reserved. Without limiting the rights under copyright reserved above, no part of this publication may be reproduced, stored or introduced into a retrieval system, or transmitted, in any form or by any means (electronic, mechanical, photocopying, recording, or otherwise), without the prior written permission of both the copyright owner and the publisher of this book. THE SOCIAL MARKET FOUNDATION The SMF is an independent think-tank dedicated to fair markets, open public services and the formulation of public policy on the basis of facts and evidence. We work with members of all major political parties and those who have no party affiliation to bring about more sensible political debate and policies that deliver greater happiness and prosperity, fairly distributed. The Foundation is a registered charity and a company limited by guarantee. It is independent of any political party or group and all our funding sources are made public. This paper was supported by Unbound Philanthropy, a private grant-making foundation that aims to improve the quality of political debate and policy around immigration in Britain and the US. The SMF retains editorial independence over all its outputs. Views expressed in this publication are those of the author alone. CHAIR DIRECTOR Mary Ann Sieghart James Kirkup TRUSTEES Baroness Grender MBE Nicola Horlick Tom Ebbutt Rt Hon Nicky Morgan MP Rt Hon Dame Margaret Hodge MP Peter Readman Melville Rodrigues Trevor Phillips OBE Professor Tim Bale KINDLY SUPPORTED BY 1 CO-LIVING: A SOLUTION TO THE HOUSING CRISIS? CONTENTS ACKNOWLEDGEMENTS ................................................................................................. 3 ABOUT THE AUTHORS .................................................................................................. 3 EXECUTIVE SUMMARY .................................................................................................. 4 CHAPTER 1: INTRODUCTION ......................................................................................... 8 CHAPTER 2: MOTIVATIONS FOR THE STUDY: THE DECLINE IN HOMEOWNERSHIP AND WHY IT MATTERS ................................................................................................................. 9 Trends in housing affordability and homeownership ................................................ 9 Implications .......................................................................................................... 12 CHAPTER 3: CURRENT ATTEMPS TO TACKLE THE HOUSING CRISIS ............................... 14 CHAPTER 4: CO-LIVING AS A POTENTIAL SOLUTION ..................................................... 16 Examples of co-living – in the UK and elsewhere .................................................... 17 The case for an expanded “to buy” co-living offer in the UK .................................... 21 Potential demand for co-living spaces .................................................................. 23 Making a co-living offer financially compelling ...................................................... 26 CHAPTER 5: CHALLENGES TO ROLLING OUT CO-LIVING ............................................... 29 Affordable housing and minimum space requirements .......................................... 29 Land space required to create viable developments, and developer interest .......... 29 Financing the offer ............................................................................................... 30 Creating a liquid market ....................................................................................... 30 Length of tenure .................................................................................................. 30 What is being purchased? ..................................................................................... 31 Concerns among prospective buyers ..................................................................... 31 CHAPTER 6: CONCLUDING REMARKS .......................................................................... 33 Appendix: Overview of existing measures aimed at addressing the housing crisis ........ 34 Affordable housing requirements and shared ownership schemes ......................... 34 Help to Buy .......................................................................................................... 34 Stamp duty reforms .............................................................................................. 36 Smaller homes such as Pocket Living ................................................................... 36 Planning reforms/incentives to kick-start housebuilding ....................................... 38 SOCIAL MARKET FOUNDATION ACKNOWLEDGEMENTS This report has been commissioned by Barclays. The objective of the study is to explore the extent to which co-living could provide a viable route towards homeownership, and to explore the potential demand for a “to buy” co-living product. ABOUT THE AUTHORS Scott Corfe Scott Corfe joined the SMF as Chief Economist in 2017. Before joining, he was Head of Macroeconomics and a Director at the economics consultancy Cebr, where he led much of the consultancy’s thought leadership and public policy research. His expert insights are frequently sought after in publications including the Financial Times, the Sunday Times, the Guardian and the Daily Telegraph. Scott has appeared on BBC News, Sky News, Radio 4 and a range of other broadcast media. Scott was voted one of the top three forecasters of UK GDP by Focus Economics in 2016. 3 CO-LIVING: A SOLUTION TO THE HOUSING CRISIS? EXECUTIVE SUMMARY This study explores the role that co-living could play in increasing homeownership for first-time-buyers in the United Kingdom – particularly among those in younger age groups living in urban areas. Co-living refers to housing models where individuals have a private housing space, but also have access to a range of communal facilities such as shared living areas, dining spaces, gyms, gardens and cinema rooms. The private housing space would be a self-contained flat or house, or, as has recently been the case in co-living developments, a micro-studio flat or room. The types of communal facilities on offer could also vary drastically, catering for a range of budgets. For example, lower-priced co-living developments may not contain relatively luxury facilities such as cinema rooms. One of the key distinguishing aspects of co-living is its heavy emphasis on facilitating social interaction and supporting the development of active communities in which individuals engage with their neighbours on a regular basis. Recent years have seen the emergence of small rooms/studios in co-living spaces that can be rented in London and other global cities, such as New York, San Francisco and Beijing, through organisations such as The Collective, Roam and WeLive. Other co-living developments, for example Munksoegaard in Denmark, offer larger private housing space but relatively minimal or basic communal facilities. This report identifies a substantial issue of housing unaffordability in the UK, which has a range of negative socioeconomic implications: • Since the start of the century, the average house price in the UK has almost tripled, rising from £102,000 in 2000 to £283,000 in 2018. The ratio of house prices to average employee salaries (a key measure of housing affordability) has increased dramatically, rising from 6.3 to 10.5 over the same time period. • Homeownership rates have fallen sharply as a result of high house prices, particularly among the young. While in 2004/05 a majority (58.6%) of those aged 25-34 were homeowners, by 2017/18 just over a third (37.6%) were. For those aged 16-24, homeownership rates declined from 24.0% to 12.3% over the same period. • Declining homeownership has its costs: o Negative impacts on wealth and savings - According to the ONS Wealth and Assets Survey, housing is a key source of wealth in the UK, accounting for just over a third (35%) of all the wealth held by UK households. Furthermore, homeownership is a powerful way of encouraging saving and wealth accumulation, with mortgages essentially forcing individuals to make regular capital payments over time o Increased levels of wealth inequality within and between generations – as those locked out of the property ladder fall behind in terms of capital accumulation. o Negative impacts on wellbeing - data collected by the Office for National Statistics (ONS) on wellbeing suggest that homeownership is associated with better wellbeing outcomes o Failing to meet individuals’ aspirations - Survey findings, commissioned from Opinium to support this research, show that an overwhelming majority SOCIAL MARKET FOUNDATION (82%) of under 35s in the UK that do not own a home wish to be homeowners., The reality is that homeownership remains a key aspiration and lifestyle goal for most individuals in the UK but nevertheless, renting has its potential advantages – such as making it easier for individuals to relocate (e.g. to a new job), and reducing risks associated with falling house prices and negative equity Recent years have seen a range of policy measures and innovations in the property market aimed at reversing the decline in homeownership. This includes the